4 Ways to Stay Out of the FCRA Line of Fire

FCRA guidelines for employersThe Fair Credit Reporting Act (FCRA) is over 40 years old, but it is only recently that the number of class action lawsuits alleging violations of it have spiked. And unlike traditional legal actions the FTC took against credit bureaus and reporting agencies, these more recent lawsuits target check authorization services, banks, retailers, grocers, and many other kinds of businesses.

Employers must understand that the FCRA applies to every kind of “consumer report” they get, whether it is an ordinary credit report or a background screening report covering any type of personal information. With the growth of background screening as a routine tactic for risk management, more and more employers are vulnerable to class action lawsuits, even when potential violations are minor and unintended.

FCRA experts Rod Fliegel, Jennifer Mora, and William Simmons of the Littler law firm recently published an update on legal actions against employers. They report an increasing trend in FCRA-based class action lawsuits, including 10 that were filed in June and July of this year alone.

Maybe the most important takeaway in that article is that the lawsuits are often based on “hyper-technical non-compliance with the FCRA” so that the lawsuits “appear to be lawyer-contrived cash grabs” because no one suffered real harm. The lure for settlement trolls is that the FCRA permits awarding damages including up to $1,000 per violation (actual damages), attorney’s fees, court costs, and punitive damages. Several recent settlements have been well into 7 figures, and you can well imagine the winning lawyers enjoyed a big payday.

Actions you can take:

Littler suggests four mitigating measures employers can take to protect against FCRA class action risks. As you will see, these steps are intended to help employers guarantee compliance with the technical details of the FCRA:

  1. Make sure everyone in your organization is aware of FCRA requirements. You may need to implement an audit of policy and/or make changes in your procedures, and everyone needs to be on the same page.
  1. Arrange for a privileged review of your background check forms and notices. The review should include scanning whether FCRA-relevant language is included in other forms or documents as well, including employment applications, offer letters, non-compete agreements, and so forth.
  1. Ensure that adverse action notices are not sent until the recipient has had sufficient time to respond, e.g., five business days. Train all field personnel who may be part of this process.
  1. Record all personnel actions in a permanent database to support arguments that adverse actions were taken due to job-related reasons such as a poor interview rather than the results of a background report.

The FCRA is a classic case where it pays to get the details right. There is some ambiguity in the law about exactly how disclosures have to be made, so if you are in doubt, get qualified advice.

Once you have conforming documents and procedures in place, you will better positioned to avoid legal exploitation—or at least have an affirmative defense if you are sued.

elements of a comprehensive background check

About Michael Gaul

A security industry professional since 1988, Michael has extensive expertise in the fields of human capital risk management, physical security, and background screening process management. Michael leads Proforma’s sales, marketing, and strategic customer relations efforts.


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